What is the primary residence capital gains exclusion?

Under IRS Section 121, homeowners can exclude up to $250,000 (single filers) or $500,000 (married filing jointly) of capital gains from the sale of a primary residence, provided they have owned and used the home as their main residence for at least 2 of the 5 years immediately before the sale. This exclusion can be used once every 2 years. It is one of the most valuable tax benefits in the US tax code for homeowners.

What is depreciation recapture and how is it taxed?

When you sell a rental property, the IRS "recaptures" the depreciation deductions you claimed over the years and taxes them at your ordinary income rate, up to a maximum of 25% (called "unrecaptured Section 1250 gain"). For example, if you claimed $60,000 in depreciation and are in the 22% bracket, your recapture tax is approximately $60,000 × 22% = $13,200. This tax applies even if you never actually claimed the deductions — you are taxed on the depreciation you were allowed to take. Depreciation recapture can significantly increase the total tax on a property sale.

What are the long-term capital gains tax rates for real estate?

For 2023, long-term capital gains rates (for property held more than 1 year) are 0%, 15%, or 20% depending on your taxable income. The 0% rate applies for single filers with taxable income up to approximately $44,625 and married filers up to $89,250. The 15% rate applies for most middle-income taxpayers (up to ~$492,300 single / ~$553,850 married). The 20% rate applies above those thresholds. High earners may also owe a 3.8% Net Investment Income Tax (NIIT) on investment property gains. This calculator uses 15% as the default estimate.

What closing costs can I deduct from my sale proceeds?

Selling costs that reduce your taxable gain include real estate agent commissions (typically 5–6%), title insurance, escrow fees, transfer taxes, legal fees, and seller-paid closing concessions. These costs are subtracted from your sale price to arrive at "amount realized" — effectively reducing the gain. They are not deducted on your tax return separately; they reduce the gain calculation at the property level. Moving costs and mortgage payoff are not deducted from the gain.

Can I defer capital gains tax on a real estate sale?

Yes — through a 1031 Like-Kind Exchange (for investment property). Under Section 1031, if you reinvest the proceeds from a sold investment property into another qualifying investment property within strict time limits (45 days to identify, 180 days to close), you can defer both capital gains tax and depreciation recapture tax. Primary residences do not qualify for 1031 exchanges, but they may qualify for the Section 121 exclusion. Installment sales (receiving payments over time) are another deferral strategy. Always consult a tax professional before structuring an exchange.

Is this calculator applicable to investment properties outside the US?

No — this calculator applies US federal tax rules only (IRS Publications 523 and 544). Other countries have different rules: Canada taxes 50% of capital gains at marginal rates, Australia has a 50% CGT discount for assets held over 12 months, and the UK uses CGT rates of 18% or 24% for residential property (2024 rates). Non-US residents may also owe FIRPTA withholding tax on US real estate sales. Consult a tax adviser familiar with the relevant jurisdiction.

Should I rely on this calculator for my actual tax return?

No — this tool is for educational and planning purposes only. It uses simplified assumptions (flat 15% CGT rate, no state taxes, no NIIT, no installment sale treatment, no special circumstances). Your actual tax liability depends on your total income, filing status, state of residence, holding period nuances, and many other factors. Always work with a qualified CPA or tax professional, particularly for investment property sales with significant depreciation recapture.

Real Estate Capital Gains Calculator

This calculator estimates the US federal capital gains tax on a real estate sale, covering both primary residences and investment properties. It applies the Section 121 primary residence exclusion (up to $250,000 single / $500,000 married), long-term capital gains rates, and depreciation recapture tax under IRS Section 1250. Results are estimates based on published IRS rules — individual tax situations vary. Always consult a qualified CPA or tax professional before making decisions based on these figures. Sources: IRS Publication 523 (primary residences) and Publication 544 (investment property).

Purchase Price

Original price paid for the property

Purchase Closing Costs

Title, legal, recording fees added to basis

Capital Improvements

Major renovations added to cost basis

Sale Price

Sale Closing Costs

Agent commissions + fees as % of sale price (typically 6–8%)

Years Owned

Property Type

Filing Status

Accumulated Depreciation

Total depreciation claimed during ownership (see Depreciation Calculator)

Marginal Ordinary Income Rate

For depreciation recapture — capped at 25% per IRS Section 1250

Net Proceeds After Tax

$448,250.00

Estimated Capital Gains Tax (15%)

$21,750.00

Depreciation Recapture Tax

$0.00

Taxable Capital Gain (after exclusion)

$145,000.00

Gain Before Exclusion

$145,000.00

Primary Residence Exclusion

N/A (investment property)

Adjusted Cost Basis

$325,000.00

Estimate only. Uses 15% long-term CGT rate. Excludes state taxes, NIIT (3.8%), and short-term gains treatment. Consult a CPA before making tax decisions.

How to use this calculator

1
Enter purchase details
Enter the original purchase price plus any purchase closing costs (title, legal fees, recording) that were not deducted at the time of purchase. These form your adjusted cost basis.
2
Enter capital improvements
Add the total cost of major improvements made during ownership (additions, roof replacements, HVAC systems). Routine repairs and maintenance are not added to basis.
3
Enter sale price and closing costs
Enter the expected sale price. Sale closing costs (agent commissions, transfer taxes, title fees) are entered as a percentage of the sale price — typically 6–8% for sellers in the US. These reduce your net proceeds and taxable gain.
4
Select property type and filing status
Choose "Primary Residence" if you have lived in the home as your main residence for at least 2 of the last 5 years — this unlocks the Section 121 exclusion. Choose your IRS filing status to apply the correct exclusion amount.
5
Enter years owned and accumulated depreciation
Years owned determines whether you qualify for long-term rates (1+ year). For investment properties, enter the total depreciation claimed over the holding period — this is subject to recapture tax at your ordinary rate (up to 25%).
6
Review the tax estimate
The calculator shows your net sale proceeds after taxes, estimated capital gains tax, depreciation recapture tax, and taxable gain. These are estimates using a 15% long-term CGT rate — your actual rate depends on your total income and filing status.

Formula

Adjusted Basis = Purchase Price + Purchase Closing Costs + Improvements

Sale Proceeds (Net) = Sale Price − (Sale Price × Sale Closing Costs %)

Gain Before Exclusion = Net Sale Proceeds − Adjusted Basis

Primary Residence Exclusion = $250,000 (Single) or $500,000 (Married)
  — only if Primary Residence AND owned ≥ 2 years

Taxable Capital Gain = max(Gain − Exclusion, 0)

Depreciation Recapture Tax = Accumulated Depreciation × Ordinary Rate
  — investment property only; rate capped at 25%

Long-Term CGT (estimated) = Taxable Capital Gain × 15%
  — 0% for lower incomes, 20% for highest bracket

Net Proceeds = Sale Proceeds − Estimated CGT − Depreciation Recapture Tax

The adjusted basis starts with the purchase price plus capitalized acquisition costs and improvements. Selling costs reduce sale proceeds directly (lowering the taxable gain). For primary residences owned and used for 2+ of the last 5 years, Section 121 excludes up to $250,000 (single) or $500,000 (married) of gain from tax. Investment property gains are fully taxable at long-term rates (0%, 15%, or 20% based on income). Previously claimed depreciation is "recaptured" and taxed as ordinary income (capped at 25% under Section 1250 unrecaptured gain rules). This calculator uses 15% as the long-term CGT estimate (the most common rate) — actual rates depend on total taxable income. Source: IRS Publications 523 and 544.

Worked Example — Investment Property

Purchase Price: $300,000 Purchase Closing Costs: $5,000 Improvements: $20,000 Sale Price: $500,000 Sale Closing Costs: 6% Years Owned: 8 Property Type: Investment Property Filing Status: Single Accumulated Depreciation: $65,455 (approx 8 yrs × $8,182/yr) Ordinary Income Rate: 22% Adjusted Basis = $300,000 + $5,000 + $20,000 = $325,000 Net Sale Proceeds = $500,000 − ($500,000 × 6%) = $470,000 Gain Before Exclusion = $470,000 − $325,000 = $145,000 Exclusion = $0 (investment property) Taxable Gain = $145,000 Depreciation Recapture Tax = $65,455 × 22% = $14,400 (est.) Capital Gains Tax = $145,000 × 15% = $21,750 Net Proceeds After Tax = $470,000 − $21,750 − $14,400 = $433,850

Frequently Asked Questions

Related Tools

Rental Property Depreciation Calculator

1031 Exchange Calculator

Mortgage Calculator

Refinance Calculator

Mortgage Payoff Calculator

PMI Calculator